Thursday 12 December 2019

Brendan O'Connor: Left must learn 'growth' is not just a buzz word

Growth is the new austerity, but do politicians have the stomach for policies like personal debt forgiveness, asks Brendan O'Connor

A WONDERFUL LIFE? Well, it might be a little better if those burdened by debt could be given a second
chance through a personal debt forgiveness scheme
A WONDERFUL LIFE? Well, it might be a little better if those burdened by debt could be given a second chance through a personal debt forgiveness scheme

SO now, hilariously, our politicians have started lecturing us on growth and the need for it.

They have finally decided to row in with the lessons from history and the consensus of international economists from right across the political spectrum, that economic growth is the key to getting economies out of recession. They haven't quite got the other no-brainer that sucking billions out of the economy every year pushes economies deeper into recession, but they will get there soon too. What we're dealing with here is economics for very slow learners.

So now they are telling us, 'well of course there will be a stimulus package, we just need to vote for austerity first'. But from the bits and pieces you hear about the stimulus package, you would have to worry. You see, when most of us think about growing the economy we think about growing the productive parts of the economy -- the bits that actually make money. So when most of us think about a stimulus to the economy, we think of something like cutting taxes or putting more money in people's pockets in some way, so that they will spend more. Or we might think about liberalising the business environment to make it easier for business people to create employment. But you suspect that when governments and public sector unions think about a stimulus package they think about more money being spent by the Government, so basically they think about expanding our already extensive state sector.

For them, you suspect that a stimulus package will involve another stitch-up between the Government and the public sector unions whereby more money will be taken out of the public purse in order for the Government to spend it on "creating jobs", as if a government can do such a thing. So we will flog off some of our family silver in the form of state bodies, and then half the money will be frittered away by the Government. Is it just me, or is it difficult to see how that will cause the economy to power ahead? Certainly, when you hear our friends on the left, new converts to the religion of economic growth, talk about stimulating the economy, it is doubtful that what they have in mind is a pro-business stimulus.

I hardly need to outline again the reasons for our current situation. Apart from the property crash, the Irish economy has contracted by a quarter in a very short period of time -- 154 businesses went bust last month alone. We have a serious problem with demand here. That is what has us teetering on the brink of recession all the time. No one wants to spend any money. People are afraid to go shopping, afraid to go out to restaurants, they are thinking very hard about every penny they spend. This is because earnings are down and unemployment is up, but it is also because there is a whole generation drowning in debt that they can never afford to pay back, and everyone else fears the uncertain future so much that they are saving every penny they can.

Our response to the massive overhang of unsustainable personal debt has been to say that everyone must pay back every penny to the banks. Also, as a nation we are told we must pay back the private sector gambling debts of private sector banks like Anglo, that never shared with us the billions in profits and the billions they made for shareholders in the good old days, but are now sharing their losses.

We are told the Government is making a concession to those who are crippled by unsustainable debt, in the form of our much-vaunted personal insolvency legislation. The simple problem with this legislation is that it will still leave it up to the banks whether people get their debts restructured or not. In other words, in terms of people who are underwater with their mortgages, the new legislation will make no difference, unless we seriously believe that the banks are going to start voluntarily writing down people's debts. Under the new regime, people will still be at the mercy of the banks. And the banks ain't really showing any mercy. Conor Pope had an interesting report in the Irish Times during the week on a speech made by Professor Jason Kilborn, a law professor from Chicago, at a recent FLAC conference on personal insolvency. As well as pointing out the big flaw in our proposed insolvency legislation, Kilborn talked about a French system of debt settlement, whereby the French Central Bank took a proactive role in negotiations between creditors and debts, pointing out that: "There has to be the stick behind the door waiting for creditors to slap them if they don't do the right thing."

The central argument that is

presented against debt forgiveness in Ireland is that we can't afford it. But that one is hard to swallow. How can we can afford to borrow tens of billions that we will be paying off for decades to settle private corporate debt, yet we can't afford the relatively minor amount that would be needed to settle individual debt?

The real question has to be whether we can afford not to solve the private debt crisis. Because without a solution to it, our domestic economy will continue to stagnate. And it is in all of our interests to solve the debt crisis, however hard the rest of us who pay our debts might find it to stomach. So one suggestion on how to stimulate the economy would be to bring the 35 to 45-year-old productive class back into the economy by making their debts sustainable again.

These are not only the ones who should be spending money in the economy, they are also the ones who should be setting up businesses and creating jobs. But research shows that they will not take these risks while they are bogged down in unsustainable debt. So you want to know how to stimulate the economy? Use the stimulus money to forgive some debt. Use it to create a leaner, meaner economy that is not bogged down in personal debt. You might say that's money down the toilet but would it be any more wasteful than giving it to the Government to "create" jobs?

That's just one thought. Lots of people will have lots of other ideas on how to stimulate the economy. A lot of those ideas will relate not to just giving the Government an extra billion or two to spend but to changing structural factors, the way we do things here. We need to get more competitive, we need to get more flexible. We need to realise that the reason the Yanks love us is not because of our highly educated workforce and because we're special, but because of a favourable tax regime. We need to understand that you grow an economy by creating a good environment to do business in. While the left has taken on growth as its mantra now, the left has not traditionally been great at growing capitalist economies. As much as the left is having a moment right now across Europe with its populist and appealing anti-austerity campaign, it is, in fact, to the bad old boys on the right that we need to look for how to grow an economy.

Many of the answers will be things that aren't very popular. Debt forgiveness is not popular with those who pay their debts, or who were sensible enough not to buy property. Neither is it popular to suggest creating incentives for people to make money by cutting taxes, cutting back on regulation or creating incentives for people who might not be earnestly seeking work to do so.

But everyone, including the left, wants growth, and that's how you get growth, by encouraging capitalism, by freeing up the country for business. The very people who are screaming loudest about growth right now won't like it. But if we are serious about growing our way out of this, then the Government needs to get serious about making some unpopular, maybe even right-wing decisions. If the stimulus and growth package amounts to a billion euros to be put into training jobseekers, then you will know the Government has funked those hard decisions.

Sunday Independent

Today's news headlines, directly to your inbox every morning.

Don't Miss